After the war ends, although oil prices may decline, this process will not happen instantly.
Importance: Geopolitical Risk Premium and Hormuz Shipping
The Strait of Hormuz is a crucial route for Middle Eastern oil transport, and thus, the risk of conflict raises the geopolitical risk premium. Reopening and ensuring the safety of this passage can lower this premium, but it may not be immediately apparent.
Direct Impact: Oil Inventory Release Coordinated by the IEA and S&P Global's Outlook
According to S&P Global's Commodity Insights report, the surge in oil prices triggered by conflict has not significantly altered the fundamental direction of the market. Their analysis indicates that supply growth is expected to outpace demand, meaning oil prices will gradually face downward pressure rather than an immediate drop.
What Changes After the War Ends? Scenarios and Considerations
Shipping safety, insurance, and ongoing logistics constraints
Removing the risk premium and broader supply-demand fundamentals
Eliminating the conflict premium helps address fear-based pricing, but the fundamentals still rely on policies, production, and consumption patterns. This means that a decline in crude oil prices may be a gradual process, as actual flows, contracts, and refining activities need to adjust.
Common Questions Related to the Strait of Hormuz
How much geopolitical risk premium is currently in oil prices?
Analysts describe a significant premium associated with disruptions in the Strait of Hormuz, but accurate estimates remain uncertain due to the constantly changing security situation.
How will Brent and WTI prices change after the Strait of Hormuz is fully reopened?
As the premium dissipates and transportation normalizes, prices may ease, but the specific timeline depends on safety, insurance, and logistics, typically requiring weeks rather than happening immediately.